THE BENEFITS OF INVESTING IN GUINNESS: Two centuries of boom and bust in Ireland’s stock market

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25 Mar 2015

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Analysis of new data on share prices in Ireland stretching back to 1825 shows that stock market trends can be long-lasting even in the face of booms, busts and political upheavals. In research to be presented at the Economic History Society’s 2015 annual conference, Ronan Lyons and colleagues have compiled a monthly share price index for Irish equities that extends back to 1825 and can be broken down into different sectors, such as banking and railways.

One of their findings is that Guinness matters. The firm, which had become the world’s largest brewery by the early 1900s, dwarfed other non-financial, non-rail listings on the Irish stock exchange. Its strong performance in the half-century to 1930 means that an index for the entire period that includes Guinness performs significantly better than one that leaves it out: a 1% growth in share prices per year on average over the period from 1825 to 2015 compared with 0.7% without.

The study also finds that the 1% average increase in share prices per year over the last two centuries (once inflation is taken into account) varied significantly over time. There were two periods of strong price growth: 1870-1895 (4.1% per year on average) and 1985-2015 (5.1%). But there were sharply falling share prices, in inflation-adjusted terms, between 1895 and 1920, as Ireland prepared for Home Rule and later partition and independence.

The Dublin Stock Exchange is one of the world’s oldest, making analysis of the performance of share prices over the ‘very long run’ is possible. In addition, Irish economic history over the last two centuries is full of booms, busts and various domestic and international changes, both dramatic and gradual. But despite the long time span, the research finds that there are relatively few moments over the two centuries that represent a dramatic break, which suggests that trends in share prices are relatively long-lasting.

Ireland’s banks gained notoriety following the financial crisis of 2007-08, but it was an earlier banking collapse – that of the Munster Bank in 1885 – which had a more dramatic impact on Irish share prices. Whereas the more recent collapse took place over two full years, the impact of the Munster Bank collapse on Bank of Ireland, then a central bank of sorts, happened almost overnight, in December 1885. The researchers suggest that political uncertainty, in particular the election that saw the Irish Parliamentary Party hold the balance of power at Westminster, contributed to the sharp fall in share prices.

Together with similar datasets for other economies, the creation of this new long-run dataset will contribute to efforts to understand the long-run performance of share prices, compared with other series such as inflation or house prices. This, in turn, will inform strategies for funding pensions, as the fraction of the population aged 65 or over continues to increase.


Long-run patterns and shifts in wealth – Insights from Irish equities since 1825, by Ronan Lyons (Trinity College Dublin), Kevin O’Rourke (Oxford), Richard Grossman and Masami Imai (both Wesleyan University, Connecticut)

Ronan Lyons, Assistant Professor of Economics, Trinity College Dublin

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